According to Cronje, franchise systems are based on a proven model that can be successfully replicated. Because of this, these types of businesses are often considered less risky by entrepreneurs.
The reality, however, is that no franchise is immune to tough economic conditions — success factors vary depending on the concept, strength of the brand, management and the industry.
Related: How Risky Is That Franchise?
Here are six challenges that all franchisees (and franchisors, for that matter) are currently dealing with, to varying degrees.
1. Shrinking disposable income
According to Cronje, the biggest threat currently facing the franchising sector is one that is affecting all consumer-oriented businesses: A shrinking pool of disposable income. Simply put, people have less money to spend on luxuries thanks to an increase in living costs.
And, of course, there is little that can be done about this fact.
It is simply a reality that needs to be accepted and dealt with as best as possible.
If the pie as a whole is shrinking, the only solution is to try to increase your share.
2. Increasing competition
A problem that franchisors trying to increase their share of the pie are facing, is the fact that an increasing number of global (and very recognisable) players are entering the local franchising sector.
Burger King, Domino’s and Krispy Kreme have all arrived, and other brands such as Starbucks, Dunkin’ Donuts and Baskin-Robbins are on their way.
How do you remain competitive amidst such competition? “The battle for market share is increasing, with businesses constantly finding new ways of satisfying customers that favour value for money and convenience over price and ambience,” says Cronje.
Sure, brand recognition is important, but things such as value and convenience are also vital, and many franchises are choosing to focus on this.
3. Rising costs
As with the shrinking disposable income of consumers, the rising cost of many products is an economic reality that many franchisees are being forced to deal with. Issues such as the current drought have caused prices to spike, and passing all of these increases on to the consumer simply isn’t an option.
4. Falling staff morale
When business conditions are not great, some franchises can often not afford to hire more staff (or even bring in temporary staff), leaving employees severely stretched and demotivated. Job security issues are also heightened during this time, as some employees may fear losing their jobs.
Cronje says motivating staff and constantly updating them on how the business is doing is extremely important, since excellent customer service goes a long way during tough times.
5. Bad debts
When times are tough, cash flow inevitably becomes an issue. With interest rates likely to continue increasing throughout the year, Cronje believes franchises may find it difficult to service debt and borrow more money.
Because of this, it is important to be conservative and not over-leverage. Now is not the time for aggressive expansion.
6. Adapting to consumer needs
“Following a tried-and-tested model is no longer a guarantee for success in the franchising sector. Convenience and innovation in technology is increasingly becoming important to customers,” says Cronje.
Easy ordering and the ability to customise orders are becoming very important, with some brands even allowing customers to order with the help of a mobile app. Innovation is important, and brands that don’t keep up with the times will find themselves left behind.
Make Your Business A Good Neighbour
Take your business from invisible and struggling to a thriving neighbourhood landmark.
Is your business invisible to your customers? You may have fewer customers than you would like because your business does not seem relevant to those in your neighbourhood. This is an even bigger mistake than not being able to reach beyond your direct trading area.
To appeal to people – customers – you should also present your business as a group of people who help other people. This can be helping supply them with goods they need to buy, helping provide them with loans or simply being a reassuring and consistent presence in your neighbourhood.
As our Local Area Marketing Manager, Juan Botha, tells Cash Converters’ franchisees, this is about blending and fitting in like a neighbour. It is about give and take. And all of that adds up to community engagement.
Here are six of his top tips:
- Introduce the family: Cultivate a friendly, welcoming atmosphere in your shop or office. Introduce new staff to regular customers. Make sure that new customers can get to know staff through your in-store welcome boards and name badges.
- Find your partners: Identify the gatekeepers in your community and create partnerships with them. Think about approaching sports clubs, schools, church groups, sewing circles and book clubs.
- Snatch some selfies: If you have local celebrities as customers, take a selfie and post it on your social media: “Guess who came to say hello today . . .” Build relationships with local heroes and you will be able to call on them to host your in-house fun day or charity drive.
- Give back to business: Be involved in local business chambers and groupings as more than a participant. Show you are a good business neighbour by facilitating speed networking, hosting a speaker or sponsoring a sound system or catering for the next meeting.
- Adopt a cause: Identify a local charity and rally support for it.
- Help the community: Launch or participate in a community project – anything from an area clean-up or helping repaint school classrooms to planting trees or a community vegetable garden.
Building relationships helps you build your business’s reputation. That is because you can make people start to feel a certain way about your business and influence them positively towards you. Then, when they need something that you supply, you will be top of mind.
That neighbourhood warmth creates a sense of ownership. These prospective customers will already know how you can benefit their lives and so are more likely to become your regular customers.
They will be acting on the fact that people remember you for the experience you give them. As top American writer Maya Angelou said, their memories will be shaped by how you make them feel – not how or what you make them think. Relationships may be intangible but they can bring real value to your business.
Why Your Franchise Should Adopt A Shared Value Business Model
Stay ahead of the curve in an evolving business environment and unlock business growth by addressing social issues.
Have you heard the term ‘profit with purpose’ in your business ownership circles, but not sure how exactly it could be applied to your franchise? As a franchisor, entrenching this model into your core business strategy could see your current growth potential multiply – along with the communities that play a role in your business’ success.
“By leveraging resources, market access, scale and their capacity for innovation, businesses can advance and accelerate development while generating commercial returns.”– Serial entrepreneur Cindy Langeveld.
Considered the key to profit and progress, the shared value business model enables your franchise to go beyond just ticking the CSR box. Here’s why and how your franchise can start establishing partnerships for business growth:
Indicates your business has a conscience
Not only is a profit-first business approach is no longer viable for long-term business growth, the role of the consumer is becoming more prominent – and they are leaning towards buying from corporations that demonstrate conscientious business practices. Donating blankets to a charity is good, but how are you impacting those involved in the value chain that sustains your business?
Chicken franchise chain Nando’s, for example, creates shared value for the key players in the success of their brand – the small farmers in Southern Africa who farm their unique African Bird’s Eye Chillies used in the PERi-PERi flavour.
This farming initiative was started ten years ago in Mozambique with just six small farms. Today it includes 1400 farmers and produces in excess of 360 tonnes of chilli across Southern Africa.
Ensures your profit creates progress
While implementing shared value business models helps consumers see your business in a better light, it’s important for the initiatives that stem from it have a visible, positive and measurable impact on the communities concerned.
“I’ll never forget my first impact assessment. I sat with one of our farmers and a translator who told me about the impact growing chilli crops for Nando’s was having on his life and his community” recalls Sam Hirst, Nando’s PERi-PERi Farming Initiative Manager.
Nando’s has grown and sustained its network of farmers through learning and improving on the process, despite the challenges involved. Empowering the small farmer has required unprecedented effort and working very closely with farmers every day and every step of the way to overcome challenges such as generating working capital to set up the infrastructure the farmers needed, managing unpredictable weather conditions, and high transactional costs.
Creates sustainable partnerships
The purpose of implementing a shared value business model is so make a sustainable difference in both your business’ growth and that of the communities involved in your supply chain. For Nando’s the motivation was the potential impact the chilli farming could have in its communities.
The franchise has consequently invested in providing these farmers with the tools and skills for sustainable farming. Investing in technologies and various new processes has enabled Nando’s to secure prices and contracts directly with the farmers, avoiding potential negative economic impact on the farmers’ financial security.
3 Employment Best Practices To Apply In Your Franchise
Brand new to franchising? As a first-time franchisee, you may need some guidance on managing your recruitment processes within your business.
You’ve just hired your first few employees. Congratulations. As an owner-operator who is also new to business ownership, navigating the human resources aspect of your franchise may be daunting, especially when growth is imminent. Your franchisor offers support, but may not want to play a huge role in recruiting and managing your staff.
“Employee management and HR compliance is a tricky topic, especially with the relationship between franchisors and franchisees. Depending on what HR support the franchisor can and cannot provide, the franchisee may be on their own in this all-important area.” – Dean Haller, President and founder of HRSentry
This, however, doesn’t mean you’ll have to blindly search your way through human resources practices, hoping you’ll eventually get it right. Invest a little time into learning the basics, and you’ll make the best decisions until you can afford to hire an HR specialist – and pick up some expertise along the way.
1. Equip newcomers with the tools for success
Consider the type of information, tools and training your new recruits may need to function productively in their new work environment – and ensure they get it. “Studies indicate that most new employees decide whether to stay or leave a company within the first six months, so be sure to be welcoming early on to help them feel part of your team,” advises Haller.
“If you’re thoughtful of your employees’ new experience, they will become more productive and engaged, and thus, more likely to stay.”
Remember the first time you went through the manuals while familiarising yourself with the franchise concept? A new employees’ experience is similar as they have to take in a lot of new information while acquainting themselves with their new workspace, colleagues and systems. Make the on-boarding easier, by reasonably introducing each aspect during orientation and training.
2. Remain stern on performance standards
Once both parties are satisfied with the training and support offered, new staff should be made aware of expectations and receive continuous and constructive feedback on their performance based on these.
Should employees fail to meet their KPIs, it’s important you’re able to identify if your best efforts have failed and whether termination is an option. “Don’t procrastinate. Make sure all performance-related reasons are documented clearly,” says Haller. “Treat the person with dignity and respect –not only because it’s the right thing to do, but because it’s good business practice and can help you avoid any potential legal action against your business in the future.”
You can avoid this situation early on by hiring employees whose CVs not only meet your business’ operational needs, your company culture too.
3. Acknowledge and reward hard work
During key periods of business growth, it’s easy to overlook good performance. And even when you acknowledge your best employees, sometimes money in the bank isn’t as meaningful as creative tokens of appreciation.
“Get creative,” says Haller. “Provide flexible work schedules, interesting assignments, or a gift certificate to a great restaurant or spa. Be mindful that it’s costly to replace a good employee, so reward your employees with some kind of benefits if you can,” he adds.
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